SCOREBOARD: Spanish surprise

European stocks fell despite leaders suggesting Spain won't require a bailout, and US trade was light for the Columbus Day holiday.

News and dataflow was light overnight, especially given the Columbus Day Holiday in the US (public holiday, bond markets closed although stock markets were open) and price action reflected this.

I’m particularly surprised by the European price action. Sentiment took a turn for the worse as the Euro group finance ministers met in Luxembourg. The thing is there was actually some very positive data flow that came out during their session, highlighting again why the European downturn will probably prove to be light. German exports surged 2.4 per cent in August to be 5.8 per cent higher annually, which is great news for Germany of course but, on the flipside, someone is buying all this stuff and that someone is probably other European nations. Maybe the Swiss, they’ve got a strong currency and figures out last night show the unemployment rate was 2.8 per cent in September (unchanged from August).

Similarly the permanent bailout fund, the European Stability Mechanism, formally kicked off. That said leaders hosed down expectations that it would be used anytime soon. In particular, European leaders downplayed expectations that Spain will request a bailout, Germany’s Finance Minister – Wolfgang Schauble – suggesting that "The Spanish don't need an assistance program. That is what the government says over and over again, and we should just trust the Spanish government.”

I would have thought that was all positive, yet the major European indices fell quite sharply the Dax down 1.4 per cent, the CaC down 1.5 per cent while the FTSE100 was off 0.5 per cent. Spanish and Italian bond yields otherwise were little changed with the 10-year at 5.69 per cent and 4.49 per cent respectively.

As for the US, stocks were generally weaker from the open and that didn’t really change for the session. As I write, the S&P500 is off 0.3 per cent (1455), the Dow is off 0.2 per cent (13583) and the Nasdaq is off 0.7 per cent (3112). Maybe it’s nerves about the earnings season and there were a number of market reports talking about a weak season. The price performance of high profile stocks (Apple) and face book didn’t help either, both taking a tumble.

As for forex and commodities we saw the Australian dollar push about 60pips higher at the high (1.0220) despite weaker sentiment and a sluggish action in the commodity space. As I write, the unit is off a bit to 1.0198 (still up about 35pips from 1630) but that’s with a 0.2 per cent fall in crude ($89.6), a 1.3 per cent fall in copper and a small fall in gold ($4 to $1777). Those markets brushing off a pick-up in the Chinese services PMI (to 54.3 from 52). Otherwise Euro is off about 10pips to 1.2971, Sterling was off almost a big figure to 1.6028 while Yen sits at 78.32.

Looking at the day ahead, we get NAB’s business confidence indicator at 1130 followed by a Speech from RBA Deputy Governor Phillip Lowe (The Labour Market, Structural Change and Recent Economic Developments). There isn’t much more for our region, and so tonight, the key data includes UK industrial production, UK trade figures and then for the US, the NFIB small business indicators and economic optimism index are the ky figures.

That’s about the lot, have a great day…

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